Assignment 1: Business Formation


Three (3) personal trainers at an upscale health spa / resort in  Sedona, Arizona, want to start a health club that specializes in health  plans for people in the 50+ age range. The trainers Donna Rinaldi, Rich  Evans, and Tammy Booth are convinced that they can profitably operate  their own club. They believe that the growing population in this age  range, combined with strong consumer interest in the health benefits of  physical activity, would support the new venture. In addition to many  other decisions, they need to determine the type of business  organization that they want to form: incorporate as a corporation or  form a partnership. Rich believes there are more advantages to the  corporate form than a partnership, but he has not convinced Donna and  Tammy of this. The three (3) have come to you, a small-business  consulting specialist, seeking information and advice regarding the  appropriate choice of formation for their business. They are considering  both the partnership and corporation formation options.

Assume the trainers determine that forming a corporation is the best  option. Next, Donna, Rich, and Tammy need to decide on strategies geared  toward obtaining financing for renovation and equipment. They have a  grasp of the difference between equity securities and debt securities,  but do not understand the tax, net income, and earnings per share  consequences of equity versus debt financing on the future of their  business. They have asked you, the CPA, for your opinion.

Write a two to three (2-3) page paper in which you:

  1. Provide a summary to the partners, outlining the advantages and  disadvantages of forming the business as a partnership and the  advantages and disadvantages of forming as a corporation.  Recommend  which option they should pursue. Justify your response. 
  2. Explain the major differences between equity and debt financing, and  discuss the primary ways in which each would affect the future of the  partners’ business.
  3. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

  • Be typed, double spaced, using Times New Roman font (size 12), with  one-inch margins on all sides; citations and references must follow APA  or school-specific format. Check with your professor for any additional  instructions.
  • Include a cover page containing the title of the assignment, the  student’s name, the professor’s name, the course title, and the date.  The cover page and the reference page are not included in the required  assignment page length.

The specific course learning outcomes associated with this assignment are:

  • Prepare transactions related to partnerships and corporations’ stockholder equity, and issue the related financial statements.
  • Determine the concepts for investments and the related accounting transactions.
  • Use technology and information resources to research issues in financial accounting.
  • Write clearly and concisely about financial accounting using proper writing mechanics.
    • 6 years ago
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